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L - Loews


nwoodman
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Reasonably large acquisition

 

http://ir.bwpmlp.com/phoenix.zhtml?c=193443&p=irol-newsArticle&ID=1617709&highlight=

 

 

"HOUSTON, Oct 17, 2011 (BUSINESS WIRE) -- Boardwalk Pipeline Partners, LP (NYSE:BWP) announced today that it has formed a joint venture with an affiliate of its general partner, which has entered into a definitive agreement to acquire Petal Gas Storage, L.L.C. and Hattiesburg Gas Storage Company and related entities from Enterprise Products Partners L.P. for $550 million in cash (subject to customary adjustments)."

 

"Boardwalk expects that the joint venture will fund this acquisition with proceeds from a $200 million 5-year bank loan and equity contributions from Boardwalk and an affiliate of its general partner, Boardwalk Pipelines Holding Corp. (BPHC), a wholly-owned subsidiary of Loews Corporation (NYSE: L). BPHC will own 80% and contribute $280 million of the joint venture's equity and Boardwalk will own 20% and contribute $70 million. The acquisition is expected to close in the fourth quarter of 2011 subject to customary closing conditions, including expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act."

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Q3 Results not awe inspiring but at least headed in the right direction

 

+2% increase in book value for the quarter to $47.75

-1.8% decrease in shares outstanding to 397.4m

 

CNA -  seems to be on the improve NWP +8% (hope its rational pricing)

DO - good utilisation rates

BWP - acquisition and new projects

 

http://ir.loews.com/phoenix.zhtml?c=102789&p=irol-newsArticle&ID=1623517&highlight= 

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interesting comments from Tisch on earnings call today,

 

http://seekingalpha.com/article/344321-loews-ceo-discusses-q4-2011-results-earnings-call-transcript?part=qanda

 

1. CNA reporting improvement in pricing for P&C insurance

 

2. On Natural gas : "with gas trading at $3.5 or $4, the industry was going to operate at minus $25 billion cash flow. I mean, they were going to have to raise $25 billion outside sources. And now spot gas prices at $2.50 and hedges running off for E&P companies, I think there -- in some boardrooms, there's concern that's moving to fear that's going to move to panic.And I think that the decline in rigs is just one symptom of that. Now we'll have to see how this all plays out over the next 6 months to a year, but it looks like we are going to end the heating season with record amounts of natural gas that's going to put some pressure on natural gas prices"

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Does anyone have historical numbers of Loews price vs. the value of the publicly traded holdings? Today, CNA+DO+BWP = 35.55/L share. I wonder where the ratio extremes lie? Anyone?

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I haven't done that analysis, but looking at historical P/B ratios I see a normal range from 0.6x to ~1.5x.  There was an extreme low around 0.4x in 2009 after an extreme high in 2008 around 1.7x.

 

Current P/B is around 0.8x.

 

Given that BV per share has grown in the high single digits, if that continues and P/B moves back up to 1.0x in three years, you would see mid-low teens growth from $38 to ~$60.  Overshooting 1.0x on P/B back to some historical normal high, would obviously be a nice cherry on top.

 

 

CNA's underwriting has improved in recent years, but investment income is hampered by the low rate environment.  Plus, the natgas exposure is a real wildcard.  It's so low right now, and much lower than when L bought a lot of their assets there.  Does it stay below $3-4 or does it move back up to high single digits?  Can we dare to dream of double digit natgas prices?

 

It's a full position for me (~12%), but maddening to watch.  The non-answers about Q4 stock buybacks on the conference call was curious.  It may mean that they have something in the works for their excess capital, or it may just be a sit and wait approach from management.

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Thanks Liberty--that helps

 

I went back four quarters and it seems that the public traded stubs trade at 87-90% of the price of L. It's 92% now. Those are only 4 data points though. I can use that spreadsheet daily now to see how it compares.

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Yeah that is my spreadsheet. I just updated after last qtr update and should be realitively accurate. Valuation of private subs is obviously subjective. Ill add a calculation as a percentage of public sub to market cap.

Also, the idr from boardwalk to the GP (ie Loews) should start to become meaningful and I just haven't looked for the number in a while. It was asked on the conf call , but not sure it was answered.

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Loews is cheap, but, seems to have a poor history of trading at or above IV. Could be a long wait.

 

Doesn't get as much analyst attention as it should, I suppose.

 

I am hoping that it turns out ok, as long as it keeps growing IV...BV has grown 12-13% over last 5 years if I am not mistaken...I don t mind having opportunity to buy at <IV

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Has Tisch EVER said how he thinks Loews may unlock some value.

 

Being traded less than a sum-of-the-parts valuation forever gets kinda old, I would think.

 

I think biaggio and Myth pretty much nail it.  Are the Tisch's annoyed about where L is trading.  Yeah, probably a bit (probably more annoyed about where natgas is trading at the moment, though).  But, I don't think there's any rush on their part to "do something."  Just keep retiring stock and let the family ownership grow.  So long as BV per share keeps growing as it has (low double digits) the price will track it (imperfectly) upwards and the Tisches slowly get richer over time.  Bought at the right price, small minority investors can do reasonably well at the same time.

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I'm contemplating a large position...I just need to cross off a few boxes.

 

The holding company is a CEF...with tons of cash, the hotel business, Highmount and "look through" positions in DO, CNA and BWP. 

 

My question is why not own all of CNA?  trading at 0.7x book.  It just doesn't make any sense for them to be public.  DO and BWP I can understand. 

 

Buying cheap is one thing, buying cheap with a catalyst is another and at this point the company will trade like a CEF for as long as it wants to.  I was also very surprised at the lack of repurchases in the 4th quarter...that was surprising.  I'm ok with him not identifying value at the bottom if he genuinely believes L is the biggest value out there.  I try to connect the dots, but the CNA and inconsistent repurchases throws a wrench.  Another thing that bothers me are his answers to some questions, I think it was the 3Q or 2Q, where someone asked why not issue some debt and repurchase the stock?  Jim's answer made me question his "value" mind.

 

On the plus side, I know something really crazy has to happen for me to lose money IF I take a position, but that's not a good reason to own something. 

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Shah, reading through and listening to the conference calls, you start to see some really common themes:

-long-term perspective

-slow but steady buybacks

-conservative financial management (reduce debt, grow cash, retire shares)

-willingness to sit and do nothing

 

If you go back to 2008/2009, I think you'd see CNA trading at a smaller % of book value than it currently does, and the same questions about buying it in on the conference calls.  Although he never really expands on it, Jim Tisch states that there are benefits to CNA being public and downplays the likelihood of the holding company owning it outright.  I take it at face value when he says having public market valuation for some of the subs is useful as a barometer for L shareholders.  He keeps saying, it so I'd guess he believes it to be true.

 

As for the limited buybacks in Q4, I got the impression that they may have a use for the cash that they aren't ready to disclose and that limited their buybacks.  Jim jumped in quickly to say that he wasn't going to answer that question and it was best not to discuss hypotheticals about why they didn't buy more shares.

 

I think they manage it very much like an intergenerational family business.  Over the longer term, I don't think it matters much to them whether CNA is 100% owned or 90% owned.  I think they like the security and flexibility having extra cash around gives them, certainly more than that last 10% of CNA. 

 

 

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A public CNA is better, makes Loews pretty easy to value. CNA is also being fixed up nicely. I love the new CEO. Loews is a great company, I just cant get rich making a bumpy 10% a year so I moved on to deep value. CNA and DO are pretty undervalued, BWP is probably fairly valued. They need to spin out or get scale in the hotel business, and made a huge mistake buying natural gas. I dont like the talk of wet or dry gas. I think they should probably just get out of the E&P business actually and stick to pipeline / toll road type businesses. I dont think it fits with the other stuff.

 

I think the best time to buy Loews is when the subs are selling off. Then you get a double discount, and Loews is juiced as the subs and markets rebound. My biggest annoyance is the lack of activity. If you cant find value from 2008 - 2012 then you just cant find value lol.

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I bought a tiny bit last year but sold it off as I could not get comfortable with management.

 

All the great returns are earned by the previous management and they have retired in 1998. After this period, I cannot really think of anything the current management has done that shows they are even half decent capital allocators. They sold Lorillard and bought Highmont. Nothing to write home about. The only thing they have done is carry over the past policy of buybacks below book value - again just what daddy has already set in motion. Is the current management getting too much credit for the deeds of their parents?

 

I am probably missing something since many board members seem to have a linking and just want to understand why you rate the current management so highly.

 

Vinod

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Public CNA might make it easier to value, but it might not be the best for L shareholders.  I think this is FFH/ORH again.  CNA having 10% of the Company public doesn't bring in any shareholders to close the BV gap and looks like a Japanese structure to me.  That 10% is about 1 year of L repurchases and a dividend up from CNA to holding Co. L, and it's accretive. 

 

In regards to 4Q repurchases, I guess the idea of a buy up their sleeve makes sense and I think CHK divestures can attract L capital. 

 

Really my area of caution: does the way L operate make it good/beneficial/maintain wealth for the Tisch's only or can it become both for the Tisch's and shareholders together?

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